Wednesday, May 26, 2004

Krispy Kreme blames slump on carb counters

By Paul Nowell
The Associated Press

CHARLOTTE, N.C. - Krispy Kreme Doughnuts Inc. on Tuesday reported its first quarterly loss since going public in 2000, blaming the low-carb diet craze for the slump.

Chief executive officer Scott Livengood remained adamant that carb-counting snackers, rather than rapid expansion, was the culprit.

"In 30 years in this business, I have never ever seen anything that rivals what has occurred over the last three months," he told analysts, dismissing claims that Krispy Kreme was using the diet theory to cover its mistakes.

The Winston-Salem, N.C.-based company said Tuesday it lost $24.4 million, or 38 cents per share, in its first quarter after taking a charge for shutting down its Montana Mills Bread Co. chain - which it plans to sell - and other restructuring costs.

Krispy Kreme earned $13.1 million, or 22 cents a share, in the same quarter last year.

Krispy Kreme, which has seen its share price plummet 37 percent since warning on May 7 that the surging popularity of low-carb diets had hurt its sales, also scaled back its expansion plans for the year. It now estimates opening about 100 new stores systemwide, about 20 less than previously planned.

In Greater Cincinnati, Krispy Kreme has a store in Florence.

Excluding the nonrecurring charges, earnings were 23 cents a share, which matched the average analyst estimate compiled by research firm Thomson First Call.

Total sales rose 24 percent to $184.4 million and systemwide same-store sales increased 4 percent. Sales at company-owned stores rose 5.2 percent.

Shares of Krispy Kreme rose 3 cents Tuesday to close at $19.88 on the New York Stock Exchange.

During a conference call to analysts, Livengood was asked if the low-fat diet fad in the early 1990s also hurt Krispy Kreme. Not even close, he said.

"This is not an excuse. It's what it is," Livengood said. "What is important now is what we are going to do about it. We are taking it extremely seriously."

Company officials pointed to the new competition from low-carb products, particularly in supermarket aisles, where dozens of items are advertised as being low in carbohydrates.

During the call, the executives said Krispy Kreme is planning to market several new products, including a sugar-free doughnut and a new line of frozen drinks. The company also is testing a chocolate-flavored glazed doughnut, doughnut holes and mini doughnut rings.

In a note to clients Tuesday, analyst Glenn Guard of Legg Mason Wood Walker said he remains bullish on Krispy Kreme.

"While we expect more bad news from Krispy Kreme this year, we believe the market has already factored this into the share price," he wrote. "People are not going to stop eating doughnuts and Krispy Kreme continues to take market share away from competitors."

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